Impacts of Risk and Service Type on Nearshore and Offshore Investment Location Decisions

An Empirical Approach

Abstract

Offshoring of services has gained considerable attention in management circles. However, little empirical research has explored the emerging sourcing alternative of nearshoring, despite the fact that firms situate about one out of five projects abroad in a nearshore location as opposed to an offshore location.

We empirically assess the impact of economic and risk factors regarding firms’ services location choices between offshoring and nearshoring. We find these factors influence firm decision-making regarding services offshoring location choices, and that these factors are more or less important to firms depending on whether the firm offshores relatively higher versus relatively lower skill services.

Offshoring firms appear willing to trade off some gains in one area (lower wages) to mitigate costs in others (higher risk), and that the factors that drive nearshoring are qualitatively different than those that influence offshoring.

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Journal of International Business Studies, 8(1), 23–32.
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